JWI530 | Financial Markets in Economics - Strayer university
- Olivia, the head of Operations, is concerned that instead of stabilizing the supply chain, it will just add another process to be managed, and will distract from the core competencies the company currently has. She feels the company should focus on improving communication and supply chain management with its current vendor, and she feels confident he can negotiate a discount of 4% off of the annual outsourcing cost of $1,200,000 if she lets it be known they are considering taking over this step of the process. As there is little risk associated with Olivia’s proposal due to no upfront capital requirements,a lower risk-free discount rate of 7% would be appropriate. Oliva feels that any price reductions from the current vendor will last for five years. (NOTE: because there is no “investment”, the Payback and IRR metrics are not meaningful. Simply provide the NPV of the Savings cash flows).
JWI 530: Financial Management I
Assignment 2
PART A: Data Calculations Using the data presented above (and ignoring the extraneous information), for this profit and supply chain improvement project, calculate each of the following (where applicable):
- Nominal Payback
- Discounted Payback
- Net Present Value
- Internal Rate of Return
Scenario Nominal
Payback Discounted Payback Net Present Value Internal Rate of Return #1: Andrew #2: Stanley #3: Eva #4: Paul #5: Olivia N/A N/A N/A
Submission Requirements
Present your calculations and results either in an Excel Spreadsheet or in Word (using tables and headers to organize the information in a way that is clear and easy to read). Be sure to show your detailed calculations. If you get something wrong, you may still be able to get partial credit. Part B: Recommendations After completing the calculations for all scenarios, create a brief memo to the CEO outlining your committee’s recommendations. You may organize the memo as you see fit, but it must include the following:
- A clear opening statement of your recommendation for or against the project.
- A brief synopsis of the processes and factors that led to your recommendations.
o What information did you gather, and how did you get it? o From whom did you seek input, and why?
- A summary of the strategic benefits and risks in pursuing (or not pursuing) this project, including:
o Highlights of the main data points that support your position o Acknowledgement of the data points that oppose your argument o Identification of open/unresolved items
- An identification of the scenario that, from a purely financial perspective, represents the most accurate estimate of the anticipated results and your rationale as to why.
- An identification of non-financial elements that need to be considered for the recommended scenario.
- Any assumptions in project economics can have a significant impact on the result. Identify 3 financial elements/assumptions in your analysis that would make this project financially unattractive. Be as transparent and candid with your BOD as possible. What would have to be true for this to be a bad investment?
- A summary restating your recommendation and key action items.
Submission Requirements
- Your memo should be no more than 2 pages, single-spaced, using 10- or 12-point font.
- Focus on the rationale for your recommendations. Include key numbers to support your recommendations but do no re-present all your calculations.